BANK CHIEFS MEET WITH FEDERAL REGULATORS

DAVID FINK ; Courant Staff WriterTHE HARTFORD COURANT

C The chief executives of Bank of Boston Corp. and Shawmut National Corp., the parent of Connecticut National Bank, met with federal banking regulators Monday to discuss their expected merger, sources said.

But Shawmut Chairman Joel B. Alvord and Ira S. Stepanian, his Bank of Boston counterpart, submitted no formal application to officials of the Federal Reserve Board and Office of the Comptroller of the Currency, the sources said.

Still, an announcement of the much-discussed deal between New England's second and third biggest banking companies could come by week's end after sources reported Monday that:

Key issues related to the merger agreement had been resolved. "It's just a matter of tying up loose ends," said one source.

Investment bankers structuring the financing of the deal might be prepared to make a presentation to the boards of directors of both banks as early as Thursday or Friday Bank of Boston's directors have a meeting scheduled Thursday in Boston. Shawmut National's directors were scheduled to meet today in Hartford, but as of late Monday, it could not be confirmed that the meeting would be held. Sources said that, in any case, an as yet unscheduled meeting of Shawmut's board could be convened close to the time of the Bank of Boston board meeting so the directors of both institutions could consider any proposed deal nearly simultaneously.

The value of both bank's stock dropped sharply on the New York Stock Exchange Monday after another report that the issue of about $625 million in common and preferred stock -- to raise capital for the new institution -- could dilute the value of common stockholders' present holdings by as much as 35 percent.

Bank of Boston stock was down $1.25 a share to close at $9.75 on volume of 1.2 million shares. Shawmut closed at $8.75, down $1.12 1/2 a share, with 869,000 shares changing hands.

Shawmut's 11.4 percent slide was the fourth largest percentage decline on the New York exchange Monday, while Bank of Boston was the eighth most actively traded issue.

Sources have said that, under terms of the current plan, stockholders would receive 0.87 share of Bank of Boston stock for

each share of Shawmut stock they own.

Analysts said the reported stock swap raised questions among investors, leading to the drop in prices of both issues.

"I believe the Bank of Boston traded down because if the suggested financing that has been talked about by several of the media were to go through, it would result in a roughly 35 percent dilution for the shareholders," said James E. Moynihan Jr., an analyst with Advest Inc. in Boston.

"That is a very large, very heavy burden on equity," Moynihan said, adding he believed Shawmut stock was following the Bank of Boston trend in light of the merger talks.

"The other thing is that I think the marketplace does question whether the financing can be done at all," Moynihan said.

Sources have said the motivation behind a merger would be the estimated $300 million in savings that could be realized by closing overlapping branches, merging systems and eliminating duplicative departments.

As many as 4,000 layoffs could result from their combined work-force of 28,000, the sources said.

Both banks have been under pressure from regulators after seeing large losses and growth in their portfolios of bad loans.

Shawmut National posted $175.4 million in losses during the first half of 1991 while Bank of Boston had a $138.2 million loss over the same period.

The two banks, which would have combined assets of about $55 billion, also have substantial non-performing assets: Shawmut with $1.96 billion and Bank of Boston with $1.6 billion.

The merger would make the combined bank the largest in New England, displacing the $48 billion, Providence-based Fleet/Norstar Financial Group as No. 1 in the region.

Sources have said the proposed deal would see Stepanian remain as the number one official of the merged bank with Alvord serving as chairman but stepping down after a limited period.

The merged bank, to be called Bank of Boston, would have Gunnar S. Overstrom, Shawmut's president and chief operating officer, serving as a vice chairman, along with Charles K. Gifford, his counterpart at Bank of Boston.